(Bloomberg) –PSA Group and Fiat Chrysler Automobiles NV agreed to combine to create the world’s fourth-biggest carmaker, as the manufacturers prepare to shoulder the costly investments in new technologies transforming the industry.

In the biggest auto tie-up since Daimler’s ill-fated purchase of Chrysler in 1998, the French and Italo-American carmakers will each own half of the enlarged business. The new company, with global sales of 8.7 million vehicles, will be run by PSA Chief Executive Officer Carlos Tavares, with Fiat Chairman John Elkann holding the same role.

The all-stock transaction would forge a regional powerhouse to rival Germany’s Volkswagen AG and with a market value of about $47 billion, surpassing Ford Motor Co. The deal also brings together two carmaking dynasties — the billionaire Agnelli clan of Italy, led by Elkann, and the Peugeots of France.

The transaction will take as long as 15 months to complete, pending approvals by shareholders of both companies and by regulators, the carmakers estimated.

Bulking Up

Like executives across the industry, Tavares and Elkann are responding to growing pressure to pool resources for product development, manufacturing and purchasing in the face of trade wars and an expensive shift toward electric and self-driving technology.

“The challenges of our industry are really, really significant,” Tavares, 61, told reporters on a call Wednesday. “The green deal, autonomous vehicles, connectivity and all those topics need significant resources, strengths, skills and expertise.”

“The technological revolution we are embracing requires a more innovative response than anything we have done before,” Elkann, 43, said in a letter to staff.

Fiat Chrysler shares rose 0.6% by 2:23 p.m. in Milan, while PSA climbed 1.4% in Paris. The cost of protection against a default by Fiat Chrysler fell to its lowest since 2007.

In an era when size is becoming ever more important, the deal will turn the two mid-sized carmakers into a global heavyweight, with a stable of popular brands and annual vehicle sales surpassing General Motors Co. The combination will give Peugeot-maker PSA a long-sought presence in North America and should help Fiat gain ground in developing low-emission technology, where it’s lagged rivals.

Yet the new company will still be heavily reliant on Europe’s sluggish and saturated auto market, and poorly positioned in China, the world’s largest country for car sales.

Planned Savings

The companies are aiming to extract 3.7 billion euros in annual synergies from the deal, without closing any plants, unchanged from the target they announced when they disclosed their merger discussions.

The challenges will be manifold, from improving Fiat’s struggling European operations to meeting tough rules on emissions that kick in next year in the region as well as an unprecedented policy known as the green deal demanding an even tougher clampdown on carbon. Tavares, known as a hard-nosed cost-cutter, will also have to navigate the political crosscurrents in France, Italy and the U.S., where the automakers have deep national roots.

He has tackled tough jobs before, leading the French carmaker back from the brink after taking over in 2014, and reviving the loss-making Opel brand after acquiring it from GM two years ago.

“We believe further synergies above the modest 3.7 billion euros announced will be required to justify the combination going forward, which Tavares’ track record makes likely,” Bloomberg Intelligence analyst Michael Dean said in a note.

The deal with Fiat Chrysler marks a reversal of fortune for the executive, who was forced into a bystander role earlier this year when Elkann approached Renault SA, PSA’s French rival. That merger fell apart in early June after Renault’s Japanese partner, Nissan Motor Co., declined to back it.

China’s Dongfeng Motor Corp., which owns 12% of PSA, will see its stake in the combined company decline to 4.5% as a result of the deal and the sale of a portion of its holding to the French carmaker.

Dongfeng’s stake in PSA has attracted attention because of the possibility it could interfere with U.S. regulatory approval. U.S. economic adviser Larry Kudlow said last month the Trump administration would review the proposed merger because the deal would give the Chinese carmaker a stake in the combined company.

Tavares, on the call, said the companies don’t expect any significant issues from the antitrust regulators.

Fiat CEO Mike Manley dismissed concerns over legal and tax issues that arose in recent weeks. GM in November accused Fiat Chrysler of bribing a union in the U.S. for more favorable terms. Manley, speaking with reporters, called the allegation meritless.

Separately, Italian tax authorities have claimed that Fiat owes the government a hefty sum after underestimating Chrysler’s value following its purchase several years ago. Manley reiterated that the case would have no material impact, and said both issues were reviewed during due diligence with PSA.

Manley, 55, who took over at Fiat last year after the sudden death of industry legend Sergio Marchionne, “will be there alongside” Tavares at the combined group, Elkann said in a letter to employees. He didn’t specify what Manley’s role would be.

Before the closing, Fiat will distribute to its shareholders a special dividend of 5.5 billion euros while PSA will distribute its 46% stake in car-parts maker Faurecia SE to its own investors.

The spinoff or sale of Fiat’s robotics arm Comau slated for the benefit of the Italian company’s shareholders has been modified since October. Now, the planned separation will occur after the closing, and shareholders of the combined company will benefit.

Goldman Sachs acted as lead financial adviser to Fiat Chrysler, while Bank of America, Barclays, Citigroup, d’Angelin & Co., JPMorgan and UBS also provided financial advice to the company. Sullivan & Cromwell LLP, De Brauw Blackstone Westbroek and Darrois Villey Maillot Brochier acted as legal counsel to the Italo-American carmaker.

Mediobanca’s Messier Maris & Associés acted as lead financial adviser to PSA, while Morgan Stanley also provided financial advice. Bredin Prat served as legal counsel to the French manufacturer.

Exor, the Agnelli family holding company which controls Fiat, was advised by Lazard.

Below are additional details of the deal:

• Fiat holders to have 1:1 share exchange vs. 1.742:1 for PSA investors
• PSA, Fiat each to distribute 1.1 billion-euro dividend in 2020
• The companies will build most of their cars on two common platforms

–With assistance from Gabrielle Coppola and Tasos Vossos.